Working towards change

During July, there was a major focus on financial wellness. Being National Savings Month, there were a lot of campaigns and advertisements promoting financial wellness and the need for proper financial planning.

But is this making an impact? Are people paying attention to these messages regarding their financial wellbeing? The recently released 2016 Momentum/Unisa Household Financial Wellness Index paints a gloomy picture.

Framing the debate

We need to frame the debate. In doing so, we need to acknowledge that finances are very personal and different circumstances affect different families.

With this is mind, what does it mean to be financially well? Professor Bernadene de Clercq, Researcher at the Department of Taxation at Unisa, proves the following definition, “A person or household is defined as financially well when they continuously plan and manage their money so that they can afford their expenses and reach their goals over their lifetime.”

With this definition in mind, where do South African households stand?

Changing dynamics

“Overall, South Africans are becoming more aware of their finances and their financial positions. However, a lot of work still needs to be done,” said De Clercq.

She added that when one breaks down the percentages of households along the financial spectrum that is defined by the index, forty percent of South African households fall within the financially exposed segment.

Households within these categories do participate in some form of financial planning, but do not necessarily have access to a financial planner. They save where they can but will struggle to deal with emergencies that cost greater than R20 000 without borrowing money or going into debt.

“While the majority of South African households fall into this category, it must be pointed out that 2.3% of South African Households are financially distressed, and 31.4% of South African households are financially unstable. If we add this to the financially exposed segment, we find that 73.7% of South African households are financially unwell,” said De Clercq.   

The key role player

Various questions are asked to determine the position of a household across the index’s spectrum; predictably, the responses given are reflective of the households position to the question at that given point in time. For example, one of the questions was: agree with this statement – I will be able to cope with a financial emergency requiring R20 000. Only 6.3% of the financially distressed households agreed with this statement while just over 42% of the households in the financially exposed segment agreed with this statement.

What was a common theme across all households (across the spectrum) is that as households plan their expenses, work with budgets, and employ the services of a financial adviser, they can start making the successful journey towards financial wellness.

Financial courage

Speaking at the launch of the index, Danie van den Bergh – Head of Momentum Brand and Marketing at MMI – said that it takes financial courage to progress in life.

“Every company and financial adviser should be working towards changing the lifetime wellness of individuals, families and communities in South Africa. A lot can be said about this, but the biggest action that can be taken towards prosperity is to work with a financial adviser and to constantly revisit financial plans on a regular basis. It’s about making the hard decisions to live within your means and within a budget and not keeping up with the Jones’,” said Van Den Bergh.

Going back to basics

A panel discussion followed the presentation of the index, and the issue of basic financial literacy at schools was discussed.

“When it comes to managing finances, people need to go back to basics. There needs to be financial education and there needs to be this kind of education from early on in life. Any parent will know that if children develop a habit at school, it will carry on with them throughout their life, so let’s make money management a habit,” said David Kop CFP, Head of Head of Advocacy and Consumer Affairs at the Financial Planning Institute.

This sentiment was echoed by Lyndwill Clarke, Head of Consumer Education at the Financial Services Board (FSB), “If there is one thing that a person needs to do to ensure financial wellness, they need to know how much money they have and then spend accordingly. Bottom line, never spend more than you earn.”

Editor’s Thoughts:
It seems like basics, but we are getting this wrong. Yes there are families in South Africa who live hand-to-mouth and can’t plan, but the index suggests that there are many families who can plan. Access to financial planners needs to be promoted on a major scale, and we need to make it available to lower income earners. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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